New law mandates personal liability for Hawaii excise tax

Effective July 1, a new law could penalize businesses and nonprofits that fail to file all of the required reports for Hawaii’s general excise tax. Officers and employees will be held personally liable for unpaid taxes and nonprofits that fail to comply will be stripped of their Hawaii tax-exempt status.

On June 1, Gov. Linda Lingle signed Act 155 into law. It requires all businesses and nonprofits, whether or not they currently pay the G.E.T., to register to do business with the state, file timely tax returns and claim their entitlement, or exemptions. It also creates for the first time a personal trust liability for the businesses that pass along the G.E.T. to customers and other businesses.

“In both of these provisions you’re going to have taxpayers that are going to be caught unawares,” said Ray Kamikawa, a tax attorney and former director of the state Department of Taxation under Gov. Ben Cayetano.

The legislation started as House Bill 2595 sponsored by House Speaker Calvin Say by request of the Lingle administration. It’s preamble practically accuses some Hawaii businesses of cheating the system by taking the 4 percent general excise tax that’s collected from customers and using it to pay for operations instead of paying it to the state — or worse, pocketing the money.

It reads: “Businesses that do not timely remit the tax recovery amount are known to use these funds to pay operating expenses, and some disreputable businesses pocket these funds with no intention of paying their taxes.”

The new law “applies to any officer, member, manager, or other person having control or supervision over amounts of gross proceeds or gross income collected to pay the general excise tax … or who is charged with the responsibility for the filing of returns or the payment of general excise tax on gross income or gross proceeds collected and held in trust. … The person shall be personally liable for any unpaid taxes and interest and penalties on those taxes, if such officer or other person willfully fails to pay or to cause to be paid any taxes due from the taxpayer pursuant to this chapter.”